QVC Cancels Merger With Chief Rival : Analysis: Ending talks with Home Shopping Network could ultimately give Barry Diller more leeway in Paramount bid.

QVC Network Inc., facing mounting regulatory concerns in its battle for Paramount Communications Inc., Friday ended plans to merge with its chief rival, Home Shopping Network.

The action further distances QVC from cable television giant Tele-Communications Inc., which, through its Liberty Media Corp. affiliate, owns Home Shopping Network. TCI also appears ready to sell the 22% stake it holds in QVC through Liberty Media.

Sources say BellSouth Corp. is in advanced discussions to replace TCI by investing as much as $2 billion in QVC.

If Liberty bows out of QVC, as many expect, then QVC Chief Executive Barry Diller will have severed all ties to TCI Chief Executive John Malone, originally one of his principal backers in the Paramount fight. Without Malone, Diller would have to pursue the increasingly expensive Paramount acquisition without TCI’s deep pockets.

But that, in fact, may be Diller’s preference. With BellSouth waiting in the wings to take Liberty’s place, Diller would be able to move forward with his Paramount bid and even up the ante.

Also, the former studio chief of both Fox and Paramount has seen his ties to Malone strained in recent weeks, especially in the wake of TCI’s recently announced mega-merger with Bell Atlantic Corp., the giant regional phone company.

Malone did not inform Diller of plans to merge TCI with Bell Atlantic until the deal was nearly completed, and Malone subsequently described QVC’s attempts to acquire Paramount as “peripheral.” Paramount already has a friendly merger agreement with Viacom Inc., which has launched a competing tender offer for the Hollywood studio.

The QVC decision to end merger discussions with Home Shopping was prompted in part by regulatory concerns that TCI was gaining a dominant presence in too many areas of the cable and telecommunications industries.

TCI is the country’s largest cable TV operator, with more than 10 million subscribers. Its Liberty Media holds stakes in two dozen cable TV networks and serves about 3 million cable subscribers.

Liberty, Comcast Corp., Cox Enterprises and Advance Publications have agreed to invest $500 million each toward QVC’s purchase of Paramount.

TCI is acutely sensitive to antitrust concerns now, not only because it is a defendant in a sweeping antitrust complaint filed by Viacom but also due to its own proposals to reacquire Liberty and then merge with Bell Atlantic. Both of those deals require government approval.

Home Shopping Network has come close to merging with QVC at least twice, and sources said Friday that merger talks could resume in the future. A merger of the two would create a company with revenue of more than $2 billion.

QVC agreed in July to a $1.2-billion stock merger with Home Shopping Network. But that agreement has taken a back seat in recent months to the bigger drama of QVC’s pursuit of Paramount and TCI’s merger with Bell Atlantic.

Separately, QVC learned Friday the the Federal Trade Commission wants more information about the antitrust implications of its bid for Paramount. Under the Hart-Scott-Rodino Act, the FTC has 10 days to review the material once it is supplied by QVC.

The timing is important because QVC’s and Viacom’s tender offers for Paramount expire later this month. Without regulatory clearance, QVC would be unable to complete the acquisition. Viacom has already cleared its antitrust review.